On the importance of timing specifications in market microstructure research

Henker, T; Wang, JX

On the importance of timing specifications in market microstructure research

Henker, T Wang, JX

Permalink

Publication Type:: Journal Article
Citation:: Journal of Financial Markets, 2006, 9 (2), pp. 162 - 179
Issue Date:: 2006-05-01

Closed Access

	Filename	Description	Size
	2010002341OK.pdf		226.82 kB	Adobe PDF	View/Open

Copyright Clearance Process

Recently Added
In Progress
Closed Access

This item is closed access and not available.

Full metadata record

Field	Value	Language
dc.contributor.author	Henker, T	en_US
dc.contributor.author	Wang, JX	en_US
dc.date.issued	2006-05-01	en_US
dc.identifier.citation	Journal of Financial Markets, 2006, 9 (2), pp. 162 - 179	en_US
dc.identifier.issn	1386-4181	en_US
dc.identifier.uri	http://hdl.handle.net/10453/15828
dc.description.abstract	This paper highlights the importance of timing specifications in empirical market microstructure studies. Small changes in the data matching process and the timing specification of economic variables can significantly alter the outcomes of empirical research. Using the methodology developed by Lee and Ready [1991. Journal of Finance 46(2) 733-746], we show that their "5-second rule" is not appropriate for matching quotes with transactions for NYSE stocks in the TAQ data set, and the prevailing quotes are the ones immediately before the trades. We demonstrate the significance of the timing specifications of economic variables using the Huang and Stoll [1997. Review of Financial Studies 10, 995-1034] spread decomposition model. Seemingly minor variations from the theoretical model result in severe biases in the estimated parameters. Correcting the timing errors provide much more realistic spread component estimates than those achieved in the literature. Crown Copyright © 2006.	en_US
dc.relation.ispartof	Journal of Financial Markets	en_US
dc.relation.isbasedon	10.1016/j.finmar.2006.01.001	en_US
dc.subject.classification	Finance	en_US
dc.title	On the importance of timing specifications in market microstructure research	en_US
dc.type	Journal Article
utslib.citation.volume	2	en_US
utslib.citation.volume	9	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
utslib.copyright.status	closed_access
pubs.issue	2	en_US
pubs.publication-status	Published	en_US
pubs.volume	9	en_US

Abstract:

This paper highlights the importance of timing specifications in empirical market microstructure studies. Small changes in the data matching process and the timing specification of economic variables can significantly alter the outcomes of empirical research. Using the methodology developed by Lee and Ready [1991. Journal of Finance 46(2) 733-746], we show that their "5-second rule" is not appropriate for matching quotes with transactions for NYSE stocks in the TAQ data set, and the prevailing quotes are the ones immediately before the trades. We demonstrate the significance of the timing specifications of economic variables using the Huang and Stoll [1997. Review of Financial Studies 10, 995-1034] spread decomposition model. Seemingly minor variations from the theoretical model result in severe biases in the estimated parameters. Correcting the timing errors provide much more realistic spread component estimates than those achieved in the literature. Crown Copyright © 2006.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/15828